KPN issues €4 billion of new shares to cut debt

AMSTERDAM - Dutch telecommunications company Royal KPN NV (KPN.AE) said Tuesday it will raise cash by issuing new shares as it moves to reduce its ballooning debt following an expensive auction for high-speed mobile spectrum.

KPN, the largest operator in the Netherlands, will raise EUR4 billion in a rights issue to cut debt that reached EUR12 billion at the end of 2012.

The company said revenues declined 3% to 3.27 billion euros ($4.44 billion) in the last three months of 2012, hit by the economic slowdown and cut-throat competition in its Dutch home market where it competes against Vodafone Group Plc
VOD, +0.03%
and Deutsche Telekom AG (DTE.XE).

Earnings before interest, taxes, depreciation and amortisation fell 15% to 1.12 million euros ($1.52 million). High finance costs and a EUR314 million impairment charge linked to its corporate market business led to a net loss of EUR160 million compared to a net profit of EUR176 million a year earlier.

Chief Executive Eelco Blok said: "KPN's financial position has been impacted by rising debt levels combined with increased commercial investments. The EUR4 billion rights issue announced today and our earlier announcements of a lower dividend outlook will support our financial position in the coming years."

With smartphone penetration in the Netherlands at more than 50% of the population, one of the highest in Europe, KPN's traditional revenue from voice calls and text messages is being eroded by Internet services like WhatsApp, a smartphone messaging service, or Microsoft Corp.'s (MSFT) Skype, which offers free Internet phone calls.

What's more, its once-flourishing German unit E-plus - the No.3 mobile operator in Europe's biggest economy - is running out of steam. The unit posted underlying revenue growth of just 1% in the fourth quarter.

KPN paid EUR1.3 billion for Dutch 4G spectrum in mid December - far higher than was expected to pay - as it competed for radio waves that will enable it to roll out superfast fourth-generation mobile networks that are essential if it is to remain market leader on its home turf.

The high cost forced the company to scrap its final dividend. Originally, KPN had planned a dividend of EUR0.35 per share for both 2012 and 2013. It also sold mobile towers in Germany for EUR393 million, giving it a net gain of EUR100 million.

The spectrum purchase lifted net debt to EUR12 billion at the end of 2012 resulting in a leverage ratio of 3.0, surpassing the 2.0 to 2.5 range goal KPN had set itself. KPN expects that with the rights issue, it will be within its targeted range at the end of 2013.

KPN's share price has taken a hammering over past months, and took an extra hit after the high cost of the spectrum auction. It has halved over the past 12 months and Monday closed at EUR4.10.

The low share price has attracted foreign suitors. Mexican telecommunications giant America Movil SAB (AMX), controlled by billionaire Carlos Slim took a 28% stake in the company last summer, choosing to stay below the 30% mark which triggers a mandatory offer for the whole of the company under Dutch law.

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